Sunday, November 22, 2015

When the Pusillanimous Mulct

A reader inquires:
Hi John, is deflation linked to negative interest rates? What is the rationale for negative interest rates? Why banks would do this does not make any sense. Wouldn't depositors just change banks or remove most, if not all of their funds?
Swiss alternative bank breaks negative rates taboo:
Well, I am no economist, but I think it is like this:  the negative interest rate is a symptom, not a cause.  When you know an irreversible haircut of some 30% at least is coming to equities in the near term, you can leave your money in stocks and have say 70% of a million, or $700,000 in value, or 98% of a million, or $980,000 after the crash.  The price of bonds are bid, and the bond vigilantes keep the markets as real as can be hoped, so they are the smart money.

Now smarter yet is to have a million in cash, that is $100 bills, because after the crash you'll have a million.  Problem there is the hegemon will seise anything anyone have over a few hundred dollars, and is doing so currently on our nations highways and the borders.  So take your losses with bonds.

But the very best place to have your equity in deflation is in the form of asset-backed credit extended to customers of yours.  It is in microscopic amounts, making it too difficult for the hegemon to steal, its necessarily laddered, meaning it comes at intervals (usually not more they 30-60 day terms), you control then you want to book it as income by either doing so, or not, by extending the credit again, so you roll-over at your convenience.  When you match this control with business expenses, or in small business "lifestyle costs" you are simply too marginal and too squirrelly to mulct.  (Such an ugly word for taxing, I love it.)  As pusillanimous as the hegemon is, he does have limited resources. Almost all fruit is hanging lower than you, you being to high and too small to pick.

Navigating this all depends on how you define wealth.  Personal accumulation, or the range of goods and services people can afford with their own resources?

If personal accumulation, then you will be in hand to hand combat with looters fighting over what little resources are available to cover the gargantuan claims the hegemon has made.  Condign punishment for  accepting a erroneous definition.  If the other, the your work is your lifestyle, and you are pretty much denied nothing.

Get self-employed.

Feel free to forward this by email to three of your friends.